Bubbles, Fads and Stock Price Volatility Tests: A Partial Evaluation

  • Author(s): KENNETH D. WEST
  • Published: Apr 30, 2012
  • Pages: 639-656
  • DOI: 10.1111/j.1540-6261.1988.tb04596.x

ABSTRACT

This is a summary and interpretation of some of the literature on stock price volatility that was stimulated by Leroy and Porter [28] and Shiller [40]. It appears that neither small‐sample bias, rational bubbles nor some standard models for expected returns adequately explain stock price volatility. This suggests a role for some nonstandard models for expected returns. One possibility is a “fads” model in which noise trading by naive investors is important. At present, however, there is little direct evidence that such fads play a significant role in stock price determination.

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